Segmentation, Targeting, Positioning in Financial Services ...

Athens University of Economics and Business

Segmentation, Targeting, Positioning in Financial

Services Markets

Paulina Papastathopoulou, Ph.D. Lecturer in Marketing

Department of Marketing and Communications 1

Defining market segmentation

Market segmentation is the process of viewing a heterogeneous market (i.e., a market characterised by divergent demand) as consisting of a number of smaller and more homogeneous parts, called segments (Harrison, 2002)

In its ultimate form, market segmentation results in each customer being served differently, i.e., individual marketing However, due to its high-cost, individual marketing rarely is the case in consumer markets

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How a market looks like, before segmentation

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How a market looks like, after segmentation

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Why do different market segments exist and need to be treated separately? Because there are differences in the buying process

that customers follow

Need Recognition

Search for Information

Pre-purchase Alternative evaluation

Continuous Purchase Consumption

Post-purchase evaluation

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Variables that shape the buying decision-making process

Individual differences

Consumer resources (time, money, information reception and processing capabilities)

Knowledge

Attitudes

Motivation

Personality, values and lifestyle

Environmental influences

Culture Social class

Reference groups

Family Situation

Learning (the process by which experience leads to changes in knowledge and behaviour)

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The influence of culture on the market of personal financial services

Culture refers to a set of values, ideas, artifacts and other meaningful symbols that help individuals communicate, interpret and evaluate as members of society (Engel, Blackwell and Miniard, 1995)

Financial institutions that expand their operations abroad must be aware of the impact of some sensitive cultures on the demand for financial services

Islam does not allow interest Chinese people in their 50's avoid buying life insurance as

they consider it a sign of bad lack

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The effect on financial institutions that fail to segment the market

Customers with different requirements are being approached with the same financial service, the same pricing, a standardised communications policy and an inflexible service delivery process

Customer satisfaction decreases sharply Customer retention becomes harder New customer acquisition rates decline The market perceives the financial institution as having

either a product orientation or a production orientation, not a market orientation

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What are the benefits of financial services market segmentation (I)

It operationalises the concept that a company cannot be all things to all people (i.e., the "blanket" approach)

By excluding certain segments, a financial institution focuses its efforts and resources on a narrower target and gains deep knowledge of the needs of that target

It drives costs down, by enabling a closer match of corporate resources with a segment's requirements

In enhances customer satisfaction by addressing customer requirements more accurately

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What are the benefits of financial services market segmentation (II)

It enhances customer retention, since target segments see that they are being valued by a financial institution

It increases the odds of target segments perceiving the financial institution as a brand

It enables the financial institution to foresee changes in the buying behaviour of the target market and to respond timely with new offerings

It enables the financial institution to detect target segments, which are small in size but have large potential, i.e., niche segments

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